Your business dealt with the Provincial Sales Tax for years before it was replaced by the HST, so the switch back on April 1 will be no big deal, Right? Wrong. It's not the same PST you used to know. BCBusiness will help you through the transition. Here's a primer on some of the key differences between the old and new PST. Watch the March issue of BCBusiness for lesson number two: a step-by-step guide to preparing for the transition.
Effective April 1, 2013 the Harmonized Sales Tax (HST) of 12 per cent will be replaced by the five per cent Goods and Services Tax (GST) and seven per cent Provincial Sales Tax (PST). Although the overall tax rates will be the same, the application of GST and PST will be different for many goods and services. Taxpayers will have to relearn the new PST rules, which have been rewritten to modernize the old PST rules, and will need to understand how the transitional rules will apply.
Although B.C.’s Ministry of Finance has announced that the new PST will be much the same as the old one; in fact the PST legislation has been completely rewritten and modernized, as the previous legislation was written over 60 years ago. The new PST Act provides a broader definition of which goods and services will be taxable, and provides specific exemptions that will be defined in the regulations accompanying the PST Act.
Businesses will have to refamiliarize themselves with which goods and services will be subject to PST. For example, PST will generally apply to the purchase of new and used goods, and most services to goods such as vehicle maintenance and computer repair. Telecommunications services, including Internet access and cell phone use, along with most legal services will also be subject to the PST.
Many of the same goods and services as before will be exempt from the PST, including residential and commercial real estate; food for human consumption, and most services, including personal services such as dry cleaning and haircuts. Professional services, except for legal services, will be exempt, as will transportation fares; memberships, including gym memberships; newspapers and magazines; and children’s clothing.
Businesses have been able to register online since January 2, and will also be able to file returns and remit taxes online.
The timing of the transition will be tricky. As a general rule, if tax becomes payable or is paid on a transaction before April 1, 2013, HST will apply. If tax becomes payable on a transaction after March 31, 2013 and has not been paid before April 1, 2013, HST will not apply, but instead GST and PST will apply.
For newly built homes where construction begins before April 1, 2013, but ownership and possession take place after, buyers will no longer pay the seven per cent provincial portion of HST, but instead will pay a provincial “transition tax” of two per cent of the full home price.
If your business is planning a substantial capital asset purchase, you may want to do it before April 1, 2013 so that the seven per cent HST portion can be recovered as Input Tax Credits. On the other hand, businesses may consider delaying transactions until after April 1, 2013 where PST will not apply.
Finally, businesses should consider the internal changes they will need to make, including updating accounting and point-of-sale systems and amending invoices.
Faizal Valli is senior manager of taxation services at Facet Advisors LLP Chartered Accountants in Langley.